BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1350 (Leno) - Public Utilities: fines and penalties.
Amended: April 26, 2012 Policy Vote: EU&C 13-0
Urgency: No Mandate: No
Hearing Date: May 14, 2012 Consultant: Marie Liu
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1350 would allow the California Public
Utilities Commission (PUC) to use fines or penalties levied
against a gas corporation to offset the cost of gas safety
investments and expenses instead of depositing the fines in the
General Fund as required by existing law.
Fiscal Impact:
Unknown costs, but likely in the hundreds of millions of
dollars, in General Fund revenue losses likely beginning in
2013-14 as a result of the redirection of fines and
penalties into a separate account.
One-time costs of approximately $75,000 from the Public
Utilities Commission Utilities Reimbursement Account
(special fund) in 2013-14 for a proceeding to determine when
a separate account should be established and at what
interest rate.
On-going costs of approximately $120,000 from the Public
Utilities Commission Utilities Reimbursement Account
(special fund) beginning in 2013-14 to audit and oversee
expenditures from the separate account.
Background: Existing law directs the PUC to review and
investigate complaints and allegations of wrongdoing to ensure
that its regulated entities are operating safely and legally.
The PUC may impose a fine when it determines that an entity has
failed to comply with laws or has engaged in inappropriate
practices. The fine is either payable to the state, to the
customers in the form of restitution, or both. Fines payable to
the state are deposited into the General Fund.
On September 9, 2010, a 30-inch natural gas transmission line
owned by Pacific Gas and Electric (PG&E) ruptured in a
residential neighborhood in the City of San Bruno. The rupture
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caused an explosion and fire which took the lives of eight
people and injured dozens more; destroyed 37 homes and damaged
70. Gas service was also disrupted for 300 customers. The PUC
has initiated three proceedings to consider penalties against
PG&E resulting from the San Bruno incident. Penalties associated
with these investigations could easily result in fines of
hundreds of million dollars against PG&E.
Also as a result of the San Bruno incident, the National
Transportation Safety Board (NTSB), which has primary
jurisdiction for investigating pipeline failures, has found that
state and federal pipeline safety requirements are inadequate.
As a result the PUC has adopted new safety measures that require
testing and replacement of certain transmission pipes. The PUC
also has a pending rulemaking regarding additional safety
standards. PUC's new requirements are expected to cost gas
corporation ratepayers billions of dollars in the coming years.
Proposed Law: This bill would allow the PUC to order that fines
and penalties that are assessed against a gas corporation in
regards to safety standards or transportation of gas (such as
the fines pending for the San Bruno incident against PG&E) be
used to offset the costs of required safety investments and
expenses that would otherwise be paid by the utility's
customers, instead of depositing the fines into the General
Fund. The fine monies would be held in a separate account by the
gas corporation and would be subject to audit by the PUC. This
provision would sunset on January 1, 2018, at which point any
remaining funds in the account will revert to the General Fund.
Staff Comments: Historically fines assessed by the PUC were
deposited in the General Fund to eliminate any potential bias in
the assessment of the penalties. That is, if the penalties are
deposited in the General Fund, there is no incentive to charge
penalties based on enhancing utility programs. However, the PUC,
who is in support of this bill, argues that allowing the
penalties to be used for safety upgrades instead will provide
the "greatest economic and safety benefit to ratepayers."
To implement this bill, the PUC would need to open a proceeding
to determine when a separate account should be formed for fine
and penalties and what should be the interest rate on such an
account. Such a proceeding is likely to cost approximately
$75,000. The PUC would also be required to provide oversight of
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the separate account to ensure that it is being spent properly,
which may involve an audit of the account. This oversight would
require the workload equivalent of one PY at a cost of $120,000
annually.